SA305 – Linear Programming
Asst. Prof. Nelson Uhan
Spring 2013
Lesson 34. An Economic Interpretation of LP Duality
Today
• More intuition behind the dual: economic interpretation
• Complementary slackness
Warm up
The Fulkerson Furniture Company produces desks, tables, and chairs. Each type of furniture requires a certain
amount of lumber, finishing, and carpentry:
Resource
Lumber (sq ft)
Finishing (hrs)
Carpentry (hrs)
Profit ($)
Desk
8
3
2
60
Table
6
2
2
30
Chair
2
1
1
20
Available
48
20
8
Assume that all furniture produced is sold, and that fractional solutions are acceptable. Write a linear program
to determine how much furniture Fulkerson should produce in order to maximize its profits.
• Decision variables:
• Fulkerson’s LP:
Economic interpretation of the dual LP
• Suppose an entrepreneur wants to purchase all of Fulkerson’s resources (lumber, finishing, carpentry)
• What prices should she offer for the resources that will entice Fulkerson to sell?
1
• Define decision variables:
y1 = price of 1 sq. ft. lumber
y2 = price of 1 hour of finishing
y3 = price of 1 hour of carpentry
• To buy all of Fulkerson’s resources, entrepreneur pays:
• Entrepreneur wants to minimize costs
• Entrepreneur needs to offer resource prices that will entice Fulkerson to sell
• One desk uses
– 8 sq. ft. of lumber
– 3 hours of finishing
– 2 hours of carpentry
– One desk has profit of $60
⇒ Entrepreneur should pay at least $60 for this combination of resources:
• One table uses
– 6 sq. ft. of lumber
– 2 hours of finishing
– 2 hours of carpentry
– One table has profit of $30
⇒ Entrepreneur should pay at least $30 for this combination of resources:
• One chair uses
– 2 sq. ft. of lumber
– 1 hours of finishing
– 1 hours of carpentry
– One chair has profit of $20
2
⇒ Entrepreneur should pay at least $20 for this combination of resources:
• Increasing the availability of the resources potentially increases the maximum profits Fulkerson can
achieve
⇒ Entrepreneur should pay nonnegative amounts for each resource:
• Putting this all together, we get:
min
s.t.
48y1 + 20y2 + 8y3
8y1 + 3y2 + 2y3 ≥ 60
(x1 : desks)
6y1 + 2y2 + 2y3 ≥ 30
(x2 : tables)
2y1 +
y2 + y3 ≥ 20
(x3 : chairs)
y1 ,
y2 ,
y3 ≥ 0
• This is the dual of Fulkerson’s LP!
• In summary:
– Dual variables ⇔ “fair” prices for 1 unit of the associated resource
– Known as marginal prices or shadow prices
• Strong duality
– maximum revenue from selling furniture = minimum cost of purchasing resources
⇒ equilibrium between market for furniture and market for resources
• This kind of economic interpretation is trickier for LPs with different types of constraints and variable
bounds
Complementary slackness
• Optimal solution to Fulkerson’s LP: x1 = 4, x2 = 0, x3 = 0
• Resources used:
lumber: 32 < 48
finishing: 12 < 20
• How much would you pay for an extra sq. ft. of lumber?
• How much would you pay for an extra hour of finishing?
3
carpentry: 8 = 8
• Resource not fully utilized in optimal solution
⇒ marginal price = 0
• Primal complementary slackness: either
– the primal optimal solution makes a main inequality constraint active, or
– the corresponding dual variable has optimal value = 0
• Same logic applies to the dual
• Dual constraints ⇔ Primal decision variables
• Dual complementary slackness: either
– primal decision variable has optimal value = 0, or
– the corresponding dual constraint is active in a dual optimal solution
4